Computation formula in favor of the majority

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EMETERIO SD. PEREZ

EMETERIO SD. PEREZ

THE majority stockholders of Liberty Telecoms Holdings Inc. compute the 10-percent minimum public ownership rule in their favor but at the expense of the company’s public stockholders. This is a conclusion derived from a filing posted on the website of the Philippine Stock Exchange.

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“Vega Telecom Inc.,” Liberty Telecom said under Item 1 (b) of a buyout report, “is making a tender offer for up to 165,883,221 common shares representing 12.82 percent of the issued and outstanding common shares of LIB held by the public or minority stockholders of the Company other than the bidder.”

Liberty Telecom followed the quoted portions of the report with its computation of its ownership profile. Under Item 3, it described Vega “as the beneficial owner of 1,127,772,202 common shares and 5,243,603,609 preferred shares, representing approximately 97.46 percent of the total issued and outstanding capital stock of LIB…”

Regulatory intervention
Forget the other details of the PSE posting. Instead try to decipher the difference between the two formulas that Liberty Telecoms applied in arriving at “12.82 percent” public ownership” and “97.46 percent” control by the new owners.

Under Item 1 (b), Liberty Telecoms made it appear as being public while under Item 3 its public ownership was only 2.54 percent. By simply deducting 97.46 percent from 100 percent, you will get the remainder of 2.54 percent as public ownership.

It is up to the PSE and the Securities and Exchange Commission to decide which of the two computation formulas is correct. Should the public be allowed participation in the ownership of all issued and outstanding capital stock or be limited to owning only common shares?

By the way, all listed companies fill up their public ownership reports (PORs) with individual holdings of company insiders and principal stockholders and finally crediting the public with much more than the required 10 percent ownership. In a number of instances, their PORs even make public as the majority stockholders, which means owning “50 plus one percent” of common shares.

Used and ignored
How about the public stockholders’ participation in other classes of stocks such as preferred shares? Why are they not allowed ownership of this class of stock, which are sometimes wrongly classified as voting shares?

A reader of The Manila Times questioned the use of “voting preferred shares” in my columns. He pointed out that there was no such animal as “voting preferred shares.” His comments led me to a business dictionary, which, true enough, there was no entry on voting preferred shares.

As many had said before and I am repeating the quotation here: Only in the Philippines.

Personally, I am expounding this with my own: Only in this country do the majority stockholders of listed companies take advantage of the public by using them to get their companies listed. After getting what they wanted, they would buy them out. What a way to use the public and ignore them later on!

No merger?
Look again! There may be no merger plan for either Liberty Telecoms or Vega Telecom. How about joint ownership?

Flashback: As the new owners of Liberty Telecoms, Globe Telecom Inc. and PLDT Inc. increased by one the members of the board—that is, from seven to eight – of their newly acquired listed company. This means a division of policy-making powers between them- four each for Globe and PLDT.

What does this suggest to the public?

Since Liberty Telecoms will soon be taken out of the stock market, it will have no public stockholders and no independent directors.

Globe Telecom and PLDT own 50:50 of Liberty Telecom, which they may even convert to direct ownership in a unit called Bel Telecommunication Phils. Inc. or simply BelTel.

Again, remember BelTel to which Liberty Telecoms ceded ownership of its telecom assets? Market observers may ask: Why no compensation for Liberty Telecoms?

Equity payment
Said telecom assets are not given for free. The payment for them may come later but via conversion to equity of their financial value. The poser is whose equity, the answer to which is none other than BelTel.

Since Liberty Telecoms is 50:50 percent owned by Globe Telecom and PLDT, its telecom assets are held by BelTel. Valuing them is not my expertise so I will let the experts decide on them. The only thing I suggest here is for the two giant telecom players who have turned business allies from competitors to make a full disclosure of what they intend to do with BelTel.

What will happen to Liberty Telecoms after PLDT and Globe Telecom delist it from the PSE? As owners of Liberty Telecoms, they also indirectly own BelTel and Vega Telecom. In turn, Vega Telecom, which Globe Telecom and PLDT also own, holds 97.46 percent of Liberty Telecom’s issued and outstanding capital stock.

To expand the BelTel’s capital, Globe Telecom and PLDT may decide to convert into equity the debts of Liberty Telecoms that they assumed in buying out San Miguel Corp. of its ownership. Thus a lower offer price of P2.20 per share will be a big advantage for the two telecom companies.

In short, the lower the price for LIB share, the better for Globe Telecom and PLDT. More on this in another piece.

esdperez@gmail.com

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1 Comment

  1. the assignment of 700Mhz frequencies to Belltel is conditional

    d. Compliance by BellTel with submitted plan.
    e. Completion of Extelcom Rehabilitation
    f. Completion of Wi Tribe or TORI rehabilitation

    Were these conditions met? if not, is it possible that the reassignment is VOID? and that the frequency remains with LIB?